Federal-Mogul postpones disclosure statement hearing

By Peter Heap and Jeff Pines

Washington, April 5 - Federal-Mogul Corp. said it has postponed the hearing to approve its disclosure statement scheduled for April 13-14.

A new hearing date has not been set, the company said in an 8-K filing with the Securities and Exchange Commission.

The postponement was made along with the companies' co-proponents of the reorganization plan, Federal-Mogul added.

No further details or explanation were disclosed.

Meanwhile, a further objection to the plan was filed by a group of insurers objecting that the disclosure statement lacks key details about a court case that could leave the company without the cash to pay asbestos personal injury claims.

The insurers' group, which includes Allianz AG, Allstate Insurance Co., and Zurich Insurance Co., disputes Federal-Mogul's claims that it is covered by the policies covering companies to which it is the successor.

From 1968-1980, certain insurers issued policies to Studebaker-Worthington, Inc. and then from 1980-1986 to McGraw-Edison Co. Federal Mogul and DII, formerly Dresser Industries Inc., believe they are entitled to be covered for asbestos-related claims under these policies because they each purchased certain assets of the companies.

Federal-Mogul's plan calls for these insurers to pay on the policies to a trust that will settle the claims against the company. It expects the insurers to provide $2 billion.

But Federal-Mogul and DII are locked in a court battle over who is entitled to the coverage and the insurers believe neither one is entitled to the coverage.

If DII or the insurers win there would not be enough to pay the asbestos personal injury claimants. The plan neglects to mention this, the insurers said in a filing Friday with the U.S. Bankruptcy Court for the District of Delaware.

At the very least, the insurers want the company to address this issue in the statement and the plan. Also the statement and plan should address what would happen if Federal-Mogul does not win the court case.

The insurers also argued the plan is not feasible because the insurance proceeds are uncertain.

Another problem with the plan is lacks a liquidation analysis to evaluate whether Chapter 7 would provide claimants with a better recovery, they said.

As previously reported, Federal-Mogul also received objections from Longacre Master Fund, Ltd. and the Environmental Protection Agency. which complained the disclosure statement was long on pages but short on content.

"Indeed, the disclosure statement omits so much key information that it is nearly useless to general unsecured creditors," Longacre, an unsecured creditor, said in its objection filed on April 1 with the U.S. Bankruptcy Court for the District of Delaware.

One key concern is that non-noteholding general unsecured creditors are supposed to get cash in three installments over two years, but there is no estimated recovery percentage. Also, the company does not provide the estimated allowed claims, the company's liquidation value, or clearly explain the risks if the proceedings in the United Kingdom fail, it said.

Like Longacre, the EPA in its objection filed on April 1 notes the lack of recovery information, but its other concerns naturally revolve around the company's environmental issues.

It wants the company to provide creditors with a separate list of contaminated properties it owns and what it will cost to remediate them.

Under the plan, most recently amended in a March 5 filing, holders of note claims and personal injury claims on account of asbestos exposure will receive the common stock of the reorganized company.

The noteholders will get 49.9% of the common stock and a trust will be created for the benefit of the personal injury claimants. The trust will hold 50.1% of the reorganized company's common stock.

In addition, the trust will receive certain rights relating to asbestos insurance policies and asbestos insurance action recoveries.

To repay its pre-petition bank lenders, which have nearly $2 billion in claims, the company will obtain a secured term loan agreement of $1.305 billion, issue $300 million of junior payment-in-kind notes with an 11-year maturity. About $328 million will be either refinanced as part of the exit facilities or will become a senior tranche of a new $1.3 billion secured credit facility.

The plan was developed by the company, the unsecured creditors committee and the asbestos claimants committee, Federal-Mogul said. It also has the support of High River LP, which is affiliated with investor Carl Icahn, who is a creditor and a shareholder.

The plan is based on a compromise between the unsecured creditors committee and the asbestos claimants committee, the company added.

The Southfield, Mich. company, which makes auto parts, filed for bankruptcy on Oct. 1, 2001. Federal-Mogul's Chapter 11 case number is 01-10578.

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